What’s New in USPAP 2020-2021: From A Personal Property Perspective
UPDATE: Attention Qualified Appraisers - did you know that The Appraisal Standards Board extended the effective date of the current 2020-2021 USPAP through December 31, 2022? Although the manual stays current for an additional year, you are still required to take a 7-hour update course per usual. Learn more about this extension on The Appraisal Foundation website.
Having taken the USPAP 7-hour update course recently, I would like to share some of my thoughts with fellow personal property appraisers and anyone who may be curious to learn about the changes made for the 2020-2021 cycle.
Every two years, The Appraisal Foundation publishes the latest edition of the Uniform Standards of Professional Appraisal Practice (USPAP).[i] It includes adopted revisions and additional guidance for appraisals and appraisal reviews. Both personal and real property appraisers who are USPAP compliant must adhere to the most current version and stay up-to-date with their educational hours. This article will address some of the highlights that are relevant to personal property.
WARNING: The following information is not a substitute for the Uniform Standards of Professional Appraisal Practice (USPAP), as published by The Appraisal Foundation. It serves as my informal summary for those interested in the revisions made to the 2020-2021 edition. It is highly recommended that you consult the most current USPAP publication and The Appraisal Foundation website for comprehensive understanding. While definitions have been directly sourced from USPAP, all paraphrasing is my personal interpretation of the material.
Before we begin, let’s review a few basic facts:
USPAP standards and rules are generally recognized by the appraisal profession in the United States.
The aim of the biannual publication is to provide unbiased and thoughtful opinions about value.
The 2020-2021 Edition of USPAP is effective from January 1, 2020 through December 31, 2021.
What happens in 2022? Another edition is published, and further educational updates are required for those wish to remain USPAP compliant.
Definitions
So what are some of the more significant changes that we should be aware of? I would say the addition of new definitions and the modification of others.
New Definitions
Assignment elements: specific information needed to identify the appraisal or appraisal review problem: client and any other intended users; intended use of the appraiser’s opinions and conclusions; type and definition of value; effective date of the appraiser’s opinions and conclusions; subject of the assignment and its relevant characteristics; and assignment conditions.
Effective date: the date to which an appraiser’s analyses, opinions, and conclusions apply; also referred to as the date of value.
Misleading: intentionally or unintentionally misrepresenting, misstating, or concealing relevant facts or conclusions.
Personal inspection: a physical observation performed to assist in identifying relevant property characteristics in a valuation service (see USPAP for Comment).
Physical characteristics: attributes of a property that are observable or measurable as a matter of fact, as distinguished from opinions and conclusions, which are the result of some level of analysis or judgment.
Relevant characteristics: features that may affect a property’s value or marketability such as legal, economic, or physical characteristics.
(Personal note: These new definitions should not be surprising to practicing appraisers, as they used to appear in the comment sections. I believe the aim of creating these terms is to provide clarity, especially for users of appraisals who are not as familiar with the terminology.)
Major Alterations in Definitions
Appraiser: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.
(Personal note: Anyone who performs a valuation as described with these underlined characteristics is considered an appraiser. An appraiser is not required to be credentialed or belong to a professional appraisal organization. That is why it so helpful to have USPAP standards as a universal language for all in the valuation services.)
Personal property: any tangible or intangible article that is subject to ownership and not classified as real property, including identifiable tangible objects that are considered by the general public as being “personal,” such as furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; and intangible property that is created and stored electronically such as plans for installation art, choreography, emails, or designs for digital tokens.
(Personal note: USPAP is keeping up with the digital age by adding intangible to its definition of personal property. Electronically stored material is still a pioneering area for appraisals, and it will be interesting to see how this category develops.)
Minor Changes in Definitions
Exposure time
Market value
Real property
Valuation service
Value
Workfile
Appraisal
Appraisal practice
Appraisal review
Appraisal conditions
Assignment results
Client
Cost
(Personal note: For these terms, refresh your appraiser vocabulary by reading the current USPAP edition.)
One last remark about definitions – USPAP does not identify market levels or define various types of value. Instead, it is the responsibility of the appraiser to do so. For each assignment, always look to see if there is a legal definition for the value type before referencing elsewhere. In other words, you should quote the regulatory definition of a value type if available; [ii] otherwise, define appropriately and cite the source. A benefit of belonging to a professional appraisal organization is that they have a glossary describing the various kinds of values and markets (e.g., market value, replacement cost, replacement value, salvage value, wholesale market, retail market, secondary market, liquidation, etc.).
Understand the Competency Rule
Good news! You are not expected to be perfect. But as a USPAP compliant appraiser, you must know whether:
You are competent to perform the assignment, OR
You can acquire the necessary know-how to complete the assignment, OR
You must decline or withdraw from the assignment
Perhaps you are in a situation in which you know that you can become proficient prior to agreeing to the assignment. Then you as the appraiser must take the actions below:
Disclose a lack of knowledge and/or experience to the client, AND
Take the necessary steps to become competent, AND
Describe in the report the steps you took to perform the assignment in a competent manner
Due diligence is the underlying theme when assessing your own competency.
Personal Inspection Explained
Personal inspection involves a physical examination of the subject property, understanding that you are limited to that which is readily observable. You are not required to use professional equipment or employ scientific testing during a personal inspection, although certain categories may frequently involve specialized tools as expected by the given industry (e.g., gems and jewelry).
What is not a personal inspection:
Inspecting solely via photos or documents
Another third party performing the physical inspection on your behalf or hired by the client
A digital walkthrough such as using a smartphone for video chat
USPAP instructs that you obtain enough information that is sufficient to develop a credible appraisal. Having additional materials, such as previous records or photographs, are often beneficial when gathering relevant characteristics of the subject property. It all depends on the scope of work, which you determine as the appraiser for each assignment.
USPAP also really, really requires that you declare whether or not you personally inspected the subject property. It’s okay if you didn't (assuming you can produce a credible opinion of value without a personal inspection – back to that scope of work again). It is not necessarily a requirement to perform a personal inspection; just communicate to the client and intended users your methods of examination.
Review Your Certification Every Time
The most recent edition has tweaked the language of the appraiser’s certification. Specifically, one declaration now reads as follows:
“I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding the agreement to perform this assignment.”
Keep in mind that your certification doesn’t have to be verbatim from USPAP, but it must address all the mentioned elements. My feeling is why not have your certification as close to the published content as possible. Don’t forget to tailor your certification to the circumstances of each appraisal.
When More Than One Appraiser Is Involved
Many who work in valuations will, at some point, be engaged in an assignment that involves more than one appraiser. A conundrum that can crop up is who signs the certification. Anyone whose role is as an appraiser should sign the certification; how each appraiser would like to communicate his or her contribution is flexible.
For example, a client hires a team of appraisers to value his personal property for insurance coverage. This team includes a fine art appraiser, a furniture appraiser, a silver appraiser, a rugs appraiser, and a jewelry appraiser. In the certification of the report, each appraiser specifically addresses the type of property they valued, taking responsibility for her or his specialty. Another option may be that each appraiser signs their own separate certification, all of which are included in the report (in this scenario, there would be five certifications within a single report). The key detail is that all appraisers involved in the assignment must sign a certification.
Significant Appraisal Assistance
In other instances, an appraiser may have relied on work done by others who do not sign the certificate. It is important to remember that the signing appraiser is responsible for trusting others’ work and should have no reason to doubt its credibility.
Also, the extent of significant appraisal assistance does not necessarily have to be fully explained within the certification section; you can have this summary elsewhere in the report. A good mantra is disclose, disclose, disclose.
Beyond the Client for Restricted Appraisal Reports
As you may know, a restricted appraisal report communicates in less detail than would an appraisal report. Previously, a restricted appraisal report could be used only by the client and no other. The new edition has expanded the restricted appraisal report option to additional named non-client intended users, as long as the stated information remains sufficient enough for them to comprehend.
A quick note here – USPAP differentiates between an intended user described by type (e.g., a bank) versus an intended user described by name (e.g., Wells Fargo). While you can now have other intended users in a restricted appraisal report, they must be named and not simply identified by type. A named intended user can be an individual, a group, and/or an entity.
Need another example? A ‘financial advisor’ would be a type of intended user versus ‘Ms. Rodriquez of Ernst & Young’ would be a named intended user. I personally find that it can be somewhat subjective when distinguishing between the two; as always, use common sense within the context.
Some Friendly Reminders
There is no such thing as being “USPAP certified.” The correct phrasing should be something similar to “USPAP compliant” or “in compliance with USPAP.”
USPAP applies to individual appraisers and not to appraisal firms.
Communicate to the client which role you are assuming when providing your services for an assignment. Are you acting as an appraiser, consultant, broker, dealer, etc.? Make the distinction clear at the onset for the benefit of all involved.
Stay Educated
Are you a new personal property appraiser looking to comply with USPAP? Perhaps you are a veteran needing an update or would like a refresher? In any of these instances, make sure you attend courses taught by Appraiser Qualifications Board (AQB) Certified USPAP instructors.
Since real property dominates most USPAP courses, you can easily end up in a class that is geared towards real estate. An easy route to ensure you choose a version that has a personal property focus is by taking a class via the three main personal property appraisal organizations. Below are links to their websites where you can review their educational programming.
There are other avenues available to find properly-trained instructors. Perhaps a local chapter has gotten together to offer an in-person course; it can be a great way to meet your local community of appraisers. However, check with any organization you are a member of to confirm that they will recognize the class and accept it as a “credit” before registering.
When in Doubt, Refer to USPAP & The Appraisal Foundation
In conclusion, when in doubt, refer to the most current USPAP manual and visit The Appraisal Foundation website. If you have specific questions, The Appraisal Foundation is open to receiving inquiries. Simply visit their Q&A forum to ask.
About the Author: Courtney Ahlstrom Christy is Co-Editor of Worthwhile Magazine and Principal Appraiser of Ahlstrom Appraisals LLC. Courtney can be reached at ahlstromappraisals.com.
© Courtney Ahlstrom Christy 2020
Footnotes
[i] The Uniform Standards of Professional Appraisal Practice is commonly known as USPAP – that’s “Use-Pap” for phonetic lovers out there.
[ii] For example, an appraisal with the intended use of federal estate tax filing would use the definition of fair market value as set forth in Treasury Estate Tax Regulation §20.2031-1(b).